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Measuring Positive Externalities From Unobservable Victim Precaution: An Empirical Analysis of Lojack. NBER Working Paper 5928. Cambridge, Mass

NCJ Number
National Bureau of Economic Research Dated: 1997
Ian Ayres; Steven D. Levitt
Date Published
15 pages
Focusing on one form of victim precaution to deter crime (auto theft), Lojack, this article reports on the first thorough empirical analysis of the magnitude of the impact of such externalities that do not provide a visible deterrent to criminal behavior.
Private expenditures on crime prevention have potentially important externalities. Observable crime-deterrence measures, such as barbed-wire fences and deadbolt locks, may shift crime to potential victims who do not display observable crime-prevention measures, imposing a negative externality. Unobservable crime-prevention precautions, on the other hand, may provide positive externalities, since criminals cannot determine a priori who is protected. Because installing Lojack does not reduce the likelihood that an individual car will be stolen, any decrease in the aggregate crime rates due to Lojack is an externality from the perspective of the individual Lojack purchaser. This study found, however, that the presence of Lojack was associated with a sharp fall in auto theft in central cities and a more modest decline in the remainder of the state. Rates of other crimes did not change appreciably. These estimates suggest that, at least historically, the marginal social benefit of an additional unit of Lojack has been as much as 15 times greater than the marginal social cost in high crime areas. Those who install Lojack in their cars, however, obtain less than 10 percent of the total social benefits of Lojack, causing Lojack to be undersupplied by the free market. Current insurance subsidies for the installation of Lojack appear to be well below the socially optimal level. (publisher abstract modified)